Finding and Interviewing Tax Advisors & Preparers

Your challenge is to locate a tax advisor who does terrific work, charges reasonable fees, and thus is too busy to bother calling to solicit you! Here are some resources to find those publicity-shy, competent, and affordable tax advisors:

Friends and family: Some of your friends and family members probably use tax advisors and can steer you to a decent one or two for an interview.

Coworkers: Ask people in your field what tax advisors they use. This strategy can be especially useful if you’re self-employed.

Other advisors: Financial and legal advisors also can be helpful referral sources, but don’t assume that they know more about the competence of a tax person than you do. Beware of a common problem: Financial or legal advisors may simply refer you to tax preparers who send them clients.

Associations: Enrolled agents (EAs) and certified public accountants (CPAs) maintain professional associations that can refer you to members in your area.

Never decide to hire a tax preparer or advisor solely on the basis of someone else’s recommendation. To ensure that you hire a competent advisor with whom you’ll work well, take the time to interview at least two or three candidates (with the help of the following section).

Interviewing Prospective Tax Advisors

When you believe that your tax situation warrants outside help, be sure to educate yourself as much as possible before searching for assistance. The more you know, the better able you’ll be to evaluate the competence of someone you may hire.

Make sure that you ask the right questions to find a competent tax practitioner whose skills match your tax needs. The following questions/issues are a great place to start.

Remember that when all is said and done, make sure that you feel comfortable with a tax advisor. I’m not suggesting that you evaluate an advisor the way you would a potential friend or spouse! But if you’re feeling uneasy and can’t understand what your tax advisor says to you in the early stages of your relationship, trust your instincts and continue your search.

What tax services do you offer?

Most tax advisors prepare tax returns. I use the term tax advisors because most tax folks do more than simply prepare returns. Many advisors can help you plan and file other important tax documents throughout the year. Some firms can also assist your small business with bookkeeping and other financial reporting, such as income statements and balance sheets. These services can be useful when your business is in the market for a loan or if you need to give clients or investors detailed information about your company.

As a small business owner, you should seek out tax advisors who work with a large number of small businesses. This should comprise a significant portion of their practice.

Ask tax advisors to explain how they work with clients. You’re hiring the tax advisor because you lack knowledge of the tax system. If your tax advisor doesn’t explore your situation, you may experience “the blind leading the blind.” A good tax advisor can help you make sure that you don’t overlook deductions or make other costly mistakes that may lead to an audit, penalties, and interest. Beware of tax preparers who view their jobs as simply plugging your information into tax forms.

What are your particular areas of expertise?

This question is important because you want to find an advisor who’s a good match for your situation. For example, if a tax preparer works mainly with people who receive regular paychecks from an employer, the preparer probably has little expertise in helping small business owners best complete the blizzard of forms that the IRS requires.

Find out what expertise the tax advisor has in handling whatever unusual financial events you’re dealing with this year — or whatever events you expect in future years. For example, if you need help completing an estate tax return for a deceased relative, ask how many of these types of returns the tax preparer has completed in the past year. About 15 percent of estate tax returns are audited, so you don’t want a novice preparing one for you.

What other services do you offer?

Ideally, you want to work with a professional who is 100 percent focused on taxes. I know it’s difficult to imagine that some people choose to work at this full time, but they do - and lucky for you!

A multitude of problems and conflicts of interest crop up when a person tries to prepare tax returns, sell investments, and appraise real estate all at the same time. That advisor may not be fully competent or current in any of those areas.

By virtue of their backgrounds and training, some tax preparers also offer consulting and financial planning services for business owners and other individuals. Because such preparers already know a great deal about your personal and tax situation, they may be able to help in these areas. Just make sure that this help is charged on an hourly consulting basis. Avoid tax advisors who sell financial products that pay them a commission - this situation inevitably creates conflicts of interest.

Who will prepare my return?

If you talk to a solo practitioner, the answer to this question should be simple - the person you’re talking to should prepare your return. But if your tax advisor has assistants and other employees, make sure that you know what level of involvement these different people will have in the preparation of your return.

It isn’t necessarily problematic if a junior-level person does the preliminary tax return preparation that your tax advisor reviews and finalizes. In fact, this procedure can save you money in tax-preparation fees if the firm bills you at a lower hourly rate for a junior-level person.

Be wary of firms that charge you a high hourly rate for a senior tax advisor who then delegates most of the work to a junior-level person.

How aggressive or conservative are you regarding interpreting tax laws?

Some tax preparers, unfortunately, view their role as enforcement agents for the IRS. This attitude often is a consequence of one too many seminars put on by local IRS folks, who admonish and sometimes intimidate preparers with threats of audits.

On the other hand, some preparers are too aggressive and try tax maneuvers that put their clients on thin ice - subjecting them to additional taxes, penalties, interest, and audits.

Assessing how aggressive a tax preparer is can be difficult. Start by asking what percentage of the preparer’s clients gets audited (see the next question). You can also ask the tax advisor for references from clients for whom the advisor helped unearth overlooked opportunities to reduce tax bills.

What’s your experience with audits?

As a benchmark, you need to know that the IRS audits about 1 percent of all taxpayer returns. Small business owners and more affluent clients can expect a higher audit rate — somewhere in the neighborhood of 2 percent to 4 percent.

If a tax preparer proudly claims no audited clients, be wary. Among the possible explanations, any of which should cause you to be uncomfortable in hiring such a preparer: She isn’t telling you the truth, she has prepared few returns, or she’s afraid of taking some legal deductions, so you’ll probably overpay your taxes.

A tax preparer who has been in business for at least a couple of years will have gone through audits. Ask the preparer to explain her recent audits, what happened, and why. This explanation sheds light not only on her work with clients but also on her ability to communicate with you in plain English.

How does your fee structure work?

Tax advisor fees, like attorney and financial planner fees, are all over the map - from about $50 to $300 or more per hour. Many preparers simply quote you a total fee for the preparation of your tax return.

Ultimately, the tax advisor charges you for time, so you should ask what the hourly billing rate is. Alternatively, you can ask him how many hours of work he is assuming it will take to complete your tax return. If the advisor balks at answering such questions, try asking what his fee is for a one-hour consultation. You may want a tax advisor to work on this basis if you’ve prepared your return yourself and want it reviewed as a quality-control check. You also may seek an hourly fee if you’re on top of your tax preparation in general but have some specific questions about an unusual or one-time event, such as making some major purchases for your business or possibly selling your business.

Clarify whether the preparer’s set fee includes follow-up questions that you may have during the year or covers IRS audits on the return. Some accountants include these functions in their set fee, but others charge for everything on an as-needed basis. The advantage of the all-inclusive fee is that it removes the psychological obstacle of your feeling that the meter’s running every time you call with a question. The drawback can be that you pay for additional services (time) that you may not need or use.

What qualifies you to be a tax advisor?

Tax advisors come with a variety of backgrounds. The more tax and business experience they have, usually the better. But don’t be overly impressed with credentials. As I discuss earlier, tax advisors can earn certifications such as CPAs and EAs. Although gaining credentials takes time and work, these certifications are no guarantee that you get quality, cost-effective tax assistance or that you won’t be overcharged.

Generally speaking, more years of experience are better than fewer, but don’t rule out a newer advisor who lacks gray hair or who hasn’t yet slogged through thousands of returns. Intelligence and training can easily make up for less experience.

Newer advisors also may charge less to build up their practices. Be sure, though, that you don’t just focus on each preparer’s hourly rate (which of course can change over time). Ask each practitioner you interview how much total time she expects your tax return to take. Someone with a lower hourly fee can end up costing you more if she’s slower than a more experienced and efficient preparer with a higher hourly rate.

Do you carry liability insurance?

If a tax advisor makes a major mistake or gives poor advice, it could cost you thousands of dollars. The greater your income, assets, and the importance of your financial decisions, the more financial harm that can be done.

Even my presuming that you’re not a litigious person, your tax advisor needs to carry what’s known as errors and omissions or liability insurance. You can, of course, simply sue an uninsured advisor and hope the advisor has enough personal assets to cover a loss, but don’t count on it. Besides, you’ll have a much more difficult time getting due compensation that way!

You may also ask the advisor whether he has ever been sued and how the lawsuit turned out. Asking this type of question doesn’t occur to most people, so make sure that you tell your tax advisor that you’re not out to strike it rich on a lawsuit!

Another way to discover whether a tax advisor has gotten into hot water is by checking with appropriate professional organizations to which that preparer may belong. You can also check whether any complaints have been filed with your local Better Business Bureau (BBB), although this is far from a foolproof screening method. Most dissatisfied clients don’t bother to register complaints with the BBB, and you should also know that the BBB is loath to retain complaints on file against companies that are members.

Can you provide references of clients similar to me?

You need to know that the tax advisor has handled cases and problems like yours. For example, if you’re a small business owner (and I assume that by picking up this book, you either are or want to be), ask to speak with other small business owners. But don’t be overly impressed by tax advisors who claim that they work mainly with one occupational group, such as retailers or physicians. Although there’s value in understanding the nuances of a profession, tax advisors are ultimately generalists - as are the tax laws.

When speaking with a tax advisor’s references, be sure to ask what work the advisor performed and what the client’s satisfaction was with it.

Copyright Eric Tyson, 2008 - 2020 all rights reserved.

Eric Tyson is the only best-selling personal finance author who has an extensive background as an hourly-based financial advisor and who does not accept speaking fees, endorsement deals or fees of any type from companies in the financial services industry or product or service providers recommended in his articles, books and his publications.